A pip (“percentage in point”) is the smallest standard increment by which a currency pair’s exchange rate is quoted to change. For most pairs it is the fourth decimal place, or 0.0001 of the quote currency. Pips give traders, brokers, and banks a common unit for measuring price moves, spreads, and profit or loss.
How Is a Pip Calculated?
A pip is fixed by the quoting convention of the pair, not by its price level. For most pairs quoted to four decimals, one pip equals 0.0001 of the quote currency; for yen pairs quoted to two decimals, one pip equals 0.01.
So if EUR/USD moves from 1.0840 to 1.0845, that is a move of 0.0005, or 5 pips. If USD/JPY moves from 156.20 to 156.23, that is 3 pips. The pip is the same regardless of whether the rate is high or low.
Why Do Pips Matter?
Pips are how the market talks about size. Dealers quote bid-offer spreads in pips, and a position’s profit or loss is the number of pips moved multiplied by the pip value for the size traded.
Because they are a standard unit, pips let you compare execution and cost across pairs and providers on a like-for-like basis, even when the underlying prices look nothing alike.
Pip vs. Pipette
A pipette is one tenth of a pip, used when a platform quotes an extra decimal place for finer pricing. On EUR/USD a pipette is 0.00001, and pricing to that level is sometimes called tenth-pip pricing.
Many electronic venues quote pipettes to tighten spreads and improve price competition, but the pip itself remains the headline unit of measurement.
Related Terms: Spot Rate, Base and Quote Currency, Spread, Pip Value. See the full glossary for more.
This is educational content, not financial or trading advice.